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Capital Assets — Related Issues (Portfolio 562)

Be a trusted
advisor to your clients with Bloomberg BNA Tax Portfolios. This portfolio
focuses its discussion on the “sale or exchange” requirement that is necessary
in order for a capital asset to qualify for capital asset treatment under
§1221.

BLOOMBERG BNA TAX & ACCOUNTING

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DESCRIPTION

Capital
Assets – Related Issues focuses its discussion on the following
issues: (1) the “sale or exchange” requirement that is necessary in order for a
capital asset to qualify for capital asset treatment under §1221; (2) the
interpretation of the “property” requirement under §1221; (3) alternative
characterizations of sales or exchanges of capital assets under other Code
sections; (4) various judicial doctrines that may recharacterize gains or
losses as arising or not arising, as applicable, from the sale or exchange of a
capital asset; (5) specific issues involved in the sale of a business; (6) the
computation and character of a capital gain or loss; and (7) issues related to
the treatment of gain from the sale or exchange of qualified small business
stock held by a noncorporate taxpayer for more than five years.

AUTHORS

Bloomberg BNA Portfolios are written by leading tax
professionals who set the standard as leaders in their fields. The Capital Assets – Related
Issues portfolio was
authored by the following attorneys.

HOWARD J. ROTHMAN

Howard J. Rothman, B.A. earned his J.D. from Brooklyn
Law School, and his LL.M. (Taxation) from New York University School of Law. He is a member of the American Bar
Association, Section of Taxation, Committee on Closely-Held Corporations,
Subcommittee on Incorporations and Committee on Real Estate Tax Problems, and
Committee on Partnerships. He is a member
of the New York Bar and the International Bar Association.

Credentials /

Howard J. Rothman,B.A.: City College of New York
(1967); J.D., Brooklyn Law School (1971); LL.M. (Taxation) New York University
School of Law (1972); member, American Bar Association, Section of Taxation,
Committee on Closely-Held Corporations, Subcommittee on Incorporations and
Committee on Real Estate Tax Problems; and Committee on Partnerships; member,
New York Bar; member, International Bar Association.

PAMELA M. CAPPS

Pamela M. Capps, B.S.B.A., earned her J.D. from Columbia
University. She is a member of the New
York State Bar Association, Association of the Bar of the City of New York, and
New York Bar.

Credentials /

Pamela M. Capps, B.S.B.A.: Washington University in St.
Louis (1987); J.D., Columbia University (1992); member, New York State Bar
Association, Association of the Bar of the City of New York; member, New York
Bar.

BARRY HERZOG

Barry Herzog, B.A. obtained his J.D. from Columbia
University. He is a member of the New York State Bar Association, Committee on
Corporations, American Bar Association, Section of Taxation, and New York Bar.

Credentials /

Barry Herzog, B.A.: Yeshiva
University (1987); J.D., Columbia University (1991); member, New York State Bar
Association, Committee on Corporations; member, American Bar Association,
Section of Taxation; member, New York Bar.

BLAKE A. RIGEL

Blake A. Rigel, obtained a J.D. from Ohio State University
College of Law, and an LL.M., Taxation from New York University School of Law.
Blake is a member of the New York State Bar Association, American Bar
Association, Section of Taxation, Association of the Bar of the City of New
York, and New York Bar.

Credentials /

Blake A. Rigel, B.S.:
Miami University (1993), J.D., Ohio State University College of Law (2000),
LL.M., Taxation, New York University School of Law (2001): member, New York
State Bar Association, American Bar Association, Section of Taxation,
Association of the Bar of the City of New York; member, New York Bar.

TABLE OF CONTENTS

Portfolio 562-1st: Capital Assets — Related Issues

Portfolio Description

Authors

Technical Advisors

Description

Detailed Analysis

I. The Sale or Exchange Requirement

A. General Overview

1. Definition of “Sale or Exchange”

a. Definition of a “Sale”

b. Definition of an “Exchange”

2. Background

3. Statutory Sale or Exchange Treatment

4. Dispositions that Are Not Sales or Exchanges

5. Other Transactions

B. Treatment of Specific Types of Transactions as Sales or Exchanges

1. Dispositions of Debts: Retirement and Satisfaction of Bonds, Debts, and Other Obligations

a. General

b. Section 1271

c. Case Law Not Involving § 1271 or Its Predecessors

d. Property Transfers by Debtor to Satisfy or Retire Debt

2. Cancellation, Lapse, Expiration or Other Termination of Rights or Obligations

a. General

b. Section 1241

c. Section 1234A

d. Case Law Not Involving § 1234A or § 1241

(1) The Extinguishment Cases

(a) Ordinary Income

(b) Capital Gain or Loss

(2) Substitute for Income — Comr. v. Pittston Co.

(3) The Demise of the Extinguishment Cases

(4) Extinguishment Redux

(5) Post-Extinguishment Redux

3. Involuntary Dispositions

a. General

b. Section 1231

c. Foreclosures and Conveyances by Deeds in Lieu of Foreclosure

(1) Outstanding Debt Exceeds Debtor's Basis in the Property

(a) Debtor Is Solvent and Personally Liable on the Debt

(b) Debtor Is Solvent and Not Personally Liable on the Debt

(c) Debtor Is Insolvent and Personally Liable on the Debt

(d) Debtor Is Insolvent and Not Personally Liable on the Debt

(2) Debtor's Basis in the Property Exceeds Outstanding Debt

(3) Timing of Gain or Loss Recognition in a Foreclosure

4. Abandonment

a. Abandonment of Property Where Taxpayer Is Personally Liable on the Debt

b. Abandonment of Property Where Taxpayer Is Not Personally Liable on the Debt

5. Worthlessness of Securities

6. Payments by a Purchaser upon Default

a. Options

(1) Treatment of Grantor of Option

(2) Treatment of Holder of Option

b. Treatment of Down Payments or Deposits Before September 5, 1997

(1) Treatment of Seller

(2) Treatment of Purchaser

c. Treatment of Down Payments or Deposits After September 5, 1997

d. Default After Sale Completed

7. Shareholder's Transfer of Stock to Employees

8. Anticipatory Sales to Obtain Sale or Exchange Treatment

9. Transfers of Property to Pension Plans

10. Corporate Distributions

11. Partition

12. Transfer or Surrender of Life Insurance Policies

a. General

b. Surrender of a Life Insurance Contract

c. Sale of a Life Insurance Contract

d. Purchase of Life Insurance Contract by Third Party (“Life Settlements”)

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